Simply Logistics Ltd v Real Foods Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeJudge Bell
Judgment Date14 September 2011
Neutral Citation[2011] NZHC 1877
Date14 September 2011
Docket NumberCIV-2011-404-3497

[2011] NZHC 1877

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2011-404-3497

Under the Companies Act 1993

In the Matter of an originating application to set aside a statutory demand pursuant to Part 19 of the High Court Rules and section 290 of the Companies Act 1993

Between
Simply Logistics Limited
Applicant
and
Real Foods Limited
Respondent
Counsel:

N W Wood for Applicant

L J Turner for Respondent

Originating application to set aside a statutory demand pursuant to Part 19 High Court Rules (“HCR”) (originating applications) and s290 Companies Act 1993 (“CA”)(court may set aside statutory demand) — respondent sub leased premises to applicant — under the deed of sublease between respondent and applicant, the rent was to be paid without deduction or set-off — respondent served statutory demand on applicant requiring payment of amount in due of rent — applicants raised claims by way of set-off, counterclaim and cross-demand and stated that the amount claimed by it far exceeded the amount claimed by rent — respondent did not dispute indebtedness for amount claimed by applicant but stated that it could not be raised against rent — whether court would exercise discretion to allow set-offs, counterclaims and cross-demands in the light of the “no set-off” provision in the sublease.

Held: A contractual no set-off provision of the type at issue in this case would normally result in the court's discretion being exercised against an applicant if the sole grounds for an application to set aside a statutory demand was the existence of a set-off, counterclaim or cross-demand which a party had expressly agreed could not be raised. Commercial parties should be required to honour the bargain they had made, absent other grounds that told against the recognition of a statutory demand ( Brown's Real Estate v Grand Lakes Properties).

The wording in the lease excluded set-off and would preclude Simply Logistics from raising its undisputed invoices for $99,747 but that did not preclude Simply Logistics from raising other matters by way of counterclaim. While the words were not effective to give a defence to a summary judgment application, the right to use the sword of a counterclaim was not lost in this situation. In their ordinary context the words in the lease could not be used to exclude counterclaims generally.

Real Foods admitted its liability to Simply Logistics for that sum. It had however, refused to take that undisputed debt into account against the liability for rent. If the position of Real Foods was that it would insist on the payment in full of the rent due to it, but would withhold payment of the invoices due to Simply Logistics even though it acknowledged that the money was payable, then that was an unacceptable position. Real Foods' position in this case was that it had applied the undisputed invoices towards other claims which it acknowledged were disputed and disputable. Real Foods' appropriation of the undisputed invoices to the disputable parts of its claims, while asserting its claim in full for rent, was unfair and oppressive and took this case out of the run of the mill.

Further, following its re-entry on the premises, Real Foods took possession of pallets owned or hired by Simply Logistics. Real Foods advanced a proposal that pallets could be swapped for pallets, but there was no evidence that Simply Logistics agreed to the proposal. There was no evidence of any customary practice to set off pallets against pallets. As a matter of ordinary law one could not substitute one item of property for another item of property in defence of a claim for wrongful taking of property. Pallets were not a medium of exchange. Real Foods had retained property of Simply Logistics Ltd. This taking of property was in the context of the unlawful eviction of a tenant from commercial premises. Real Foods was continuing to hold these pallets knowingly and without any colour of right. The claim for the pallets was about $54,000, and if it was added to the $99,746 for the undisputed invoices, those sums, taken together, exceeded the amount of the statutory demand.

Statutory demand set aside.

ORAL JUDGMENT OF ASSOCIATE Judge Bell

1

On 31 May 2011 Real Foods Limited served a statutory demand on Simply Logistics Ltd requiring payment of $150,710.70 for rent. Simply Logistics Ltd has applied under s 290 of the Companies Act 1993 to set aside the demand.

2

Under the deed of sublease between Real Foods Ltd and Simply Logistics Ltd, rent is to be paid without deduction or set-off. Simply Logistics Ltd raises a number of claims against Real Foods Ltd in defence, and also by way of set-off, counterclaim and cross-demand. The main issue in this case is whether the Court should allow these defences, set-offs, counterclaims and cross-demands in the light of the “no set-off” provision in the sublease.

3

Real Foods Ltd carries on business at 39 Aintree Avenue, Mangere, Auckland. It leases premises from Real Investments Ltd under a deed of lease dated 26 February 1996. Real Foods Ltd imports food products and supplies them to nation-wide supermarket chains. It has a manufacturing division.

4

Simply Logistics Ltd provides warehousing and logistics services. In 2005, Simply Logistics Ltd took over the warehousing side of Real Foods Ltd's operations. This arrangement was recorded in two agreements: a sublease of part of the premises at 39 Aintree Avenue, and a warehousing storage services agreement. The sublease was for six years four months (less one day) from 1 April 2005 until 30 July 2011 with two rights of renewal of three years each. The initial annual rent was $239,000 per annum plus GST. The sub-tenant's percentage of outgoings was 63.96%. The sublease provided that the business use was warehousing.

5

Clause 4.2 of the sublease said:

Annual rent is to be paid without deduction or set-off. Payment is to be by way of automatic banker's authority as the sub-landlord may direct.

6

The directors of Simply Logistics Ltd guaranteed the sub-tenant's obligations under the sublease.

7

Under the warehousing storage services agreement Simply Logistics Ltd provides Real Foods Ltd with services under these headings: unloading and checking of stock; storage handling; inventory control; and audit management and delivery. The agreement allows Simply Logistics Ltd to provide similar services to third parties, with two exceptions, including any business whose products were incompatible with the products handled by Real Foods. The agreement contains a schedule of charges payable by Real Foods Ltd to Simply Logistics Ltd. There are provisions for annual adjustments.

7

In the part dealing with the term clause 2.4 of the warehousing storage services agreement says:

Notwithstanding the preceding provisions of this clause 2, this Agreement will automatically terminate (subject to clauses 5. 2 and 5.3(h)) on the same date as the sublease terminates.

8

Clause 8.10 says:

All payments to be made by Real Foods to Simply Logistics under this Agreement may be set-off against any payments owing by Simple Logistics to Real Foods.

9

Clause 15 deals with termination. Clauses 15. 1 and 15.2 deal with events on which the agreement terminates. Clause 15.3 deals with what is to happen on termination or expiry:

On termination or expiry of this Agreement:

  • (a) the parties will terminate the Sublease in accordance with its terms;

  • (b) each party must immediately cease to use the other party's Confidential Information;

  • (c) each party must immediately forward to the other party all copies in its possession of all material containing the other party's Confidential Information;

  • (d) Real Foods will allow Simply Logistics access to all data relating to the Third Party Services in accordance with clause 11;

  • (e) Simply Logistics will immediately transfer all data relating to the Services to Real Foods in accordance with clause 11;

  • (f) Real Foods may recover from Simply Logistics all money paid for any Services not provided under this Agreement;

  • (g) Simply Logistics may recover from Real Foods all amounts payable for Services provided under this Agreement but not paid for prior to termination or expiry; and

  • (h) The provisions of clauses 6.3, 10, 12, 13, 15. 4 and 15.5 will remain in full force and effect.

10

The sublease does not have express provisions under which the sub-lessor may re-enter but under cl 12 of the sublease, provisions of the head lease apply as between the sub-lessor and the sub-lessee, except where there are inconsistent provisions in the sublease itself. The head lease is the Auckland District Law Society Form of Commercial Lease (3rd ed) 1993. Under cl 29 of the head lease, the landlord has power to re-enter, amongst other things, if the rent is in arrears for 14 days after any rent payment due.

11

Relations between the parties have broken down. On Saturday 2 April 2011, Real Foods Ltd purported to re-enter the premises. It changed the locks and prevented Simply Logistics Ltd from going back on the premises or using the premises (except to a limited extent, to uplift some property). It retained pallets belonging to Simply Logistics Ltd.

12

On 8 April 2011, the lawyers for Simply Logistics Ltd sent a fax to Real Foods Ltd advising that Simply Logistics Ltd did not accept that the re-entry was valid because no notice under s 245 of the Property Law Act 2007 had been given. The fax advised that Simply Logistics Ltd treated the re-entry as a repudiation of the sublease and gave notice of cancellation under the Contractual Remedies Act 1979.

13

Each side makes claims against the other. The claims of Real Foods Ltd against Simply Logistics Ltd are:

Rent

$150,710.70

Overcharges by Simply Logistics Ltd

$7,139.58

Outgoings

$1,002.11

Power bill

$1,338.96

Cost of reinstating premises

$93,467.58

Interest on unpaid rent

...

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